All GLG News Analyses Filed Under: Accounting Issues

Paul MillerProfessorREGENTS OF THE UNIVERSITY OF COLORADO

Truth is truth, whether it's welcome news or not

July 7, 2009

Analysis of:The Fair Value Deadbeat Debate Returns | www.cfo.com

Financial reporting works best, and maybe only, when it is complete and unbiased.  If it is biased to manage the message, it becomes a method of distributing propaganda and all credibility is lost.The economics of gain occurrence is unarguable.  If management can retire a debt for a smaller amount than the carrying value, then there are fewer liabilities and more equity.  More equity means income has occurred.  There is no rationality behind efforts to suppress truthful news just because you don't like it.  Let's all hope the standard setters are not swayed by "visceral" impulses into the direction of keeping useful information out of financial statements.  The inevitable consequence is greater risk and discounted share and bond prices, simply because users don't have access to the truth.  That does no one any good.

Necessity, who is the mother of invention - Plato's promulgations on effective Internal Audit

May 19, 2009

Analysis by: GLG Expert Contributor

Analysis of:Internal Auditors: Mission Unaccomplished? | www.cfo.com

As economic conditions change, organizational priorities also require adjusting.  By virtue of the Sarbanes Oxley Act (2002) (SOX), organizational resources, including internal auditors, have been heavily directed to what is essentially a legal compliance role, which is normally just one of the areas of internal audit focus.  During the past 7 years organizations that needed to comply with SOX financial reporting requirements directed any competent internal audit and controls specialists to meet reporting deadlines to ensure a clean bill of health from external auditors, in order to avoid the opobrium resulting from any reported infractions.  Some entities established dedicated internal controls functions to take care of the compliance efforts, while others simply directed the existing internal audit departments to take responsibility.  In my opinion, this heavy emphasis on legal compliance resulted in a risky focus away from other key areas, contributing to the current economic crisis

Internal Auditors: Generalists Asked to Perform Specialist Functions

May 18, 2009

Analysis by: GLG Expert Contributor

Analysis of:Internal Auditors: Mission Unaccomplished? | www.cfo.com

Many companies are asking more of their internal auditors, particularly in with risk assessment and process improvement, and internal audit departments often lack expertise in those areas.  Unfortunately, the article fails to address three key issues:1.  Even when internal auditors possess process improvement, risk assessment or fraud detection skills, they often lack the industry or sub-industry expertise necessary to allow them to identify red flags or know best practices.2.  Many firms have no internal audit function whatsoever, nor do they engage any external providers to assist with such reviews.  This is particularly true in the hedge fund business, one of the leading industries to hit the headlines this year.3.  Staff turnover with internal and external auditors increases the chances that risk points are missed.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Forensic Accounting - Fraud - A Perspective

May 18, 2009

Analysis of:In House Fraud Cases Surge | www.ft.com

The referred article speaks of the increased levels of fraud by insiders in organizations across countries - especially those that are hit by recession. In this analysis I take a look at how this will impact forensic accounting and indepth audits. The role of the accountant and auditor will gain emphasis and management will have to take increased care to safeguard assets - the stewardship function.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Internal Audit - The Changing Face and Stimulus

May 15, 2009

Analysis of:Internal Auditors: Mission Unaccomplished? | www.cfo.com

The face and scope of internal audit is changing. With time processes have always taken precedence over actual verification - except when a major fraud was discovered. The referred article speaks of the change now that the newness of Sarbannes Oxley is over and business is back to normal - atleast in terms of reduced major frauds. The article is however misleading because it relies to an excessive extent on statistics presented in a verbose form (which misleads) as compared to a tabular format (which is easier to read). In my analysis below I look at how and why internal audit is becoming increasingly relevant and all aspects are equally important.

Keep Your Eyes and Ears Open

May 13, 2009

Analysis by: GLG Expert Contributor

Analysis of:In House Fraud Cases Surge | www.ft.com

Excellent article! The article is important as it correctly identified what most astute companies already know. Employee theft is on the rise as the economy takes a drip for the worst. As wallets tighten and income shrink employees will find creative ways to steal and or look for opportunities to save money. Many times employees rationalize and will justify taking office supplies or company product home as a barter exchange for services or due to the employee having taken a reduction in pay or accepted reduced hours.

slowing acceptance of IFRS by USA

May 13, 2009

Analysis by: GLG Expert Contributor

Analysis of:CFO's on IFRS: Forget About It | www.cfo.com

Accounting standards are meant to be followed and reviewed.  It looks like adequate review of US GAAP did not take place in the last 20 years.  In the meanwhile, the IASB was very active on this front and used the feedback from industry to revise the standards.  And this process is still going on!  No wonder, then that IFRS has been termed as a moving target.  And this is the genesis - the FASB was concentrating on framing new standards; the IASB was concentrating on reframing previous standards to give more scope for flexibility and transparency in accounts.

Is Liquidity Accounting the Future?

May 5, 2009

Analysis by: GLG Expert Contributor

Analysis of:CFO's on IFRS: Forget About It | www.cfo.com

Current accounting standards are confusing and hard to understand by the average reader of financial statements.  They don't present a picture of liquidity or an analysis of of cash needs and uses.  Good businesses fail principally because they run out of cash, yet the traditional statement of cash flow doesn't accurately or clearly describe sources of cash and where it went.  Nor does it indicate projected cash requirements and whether the company will be able to meet its cash needs. There must be a linkage between realistic sales and earnings forecasts and the bottom line result.  Two analyses, therefore, are vital for an understanding of where a company is heading and whether it is reasonable to assume that it will get there.  The first is cash basis forecasting, and the second is liquidity analysis.  A monthly cash flow analysis for 12 months out is critical to determine the adequacy of internally generated cash flow versus the need to draw-down on existing debt availability.

Nitish GroverPrincipal, OwnerNitish Grover and Associates

Accounting - The Congruence - The Stumbles - A Look At Accounting Standards Development

April 23, 2009

Analysis of:CFO's on IFRS: Forget About It | www.cfo.com

The present economic downturn has now got pundits and others saying that Accounting Standards are going to stumble - their will be no congruence on convergence of accounting standards. I would compare the present debate to that which took place when efforts were being made to salvage the gold standard in the first half of the last century. Then the intent was to keep the gold standard intact - it failed. The effort today is to keep national accounting standards in compartments - deny the concept of fair value - and  generally keep accounting so complex that it is as difficult to understand as all the languages of the world - spoken simultaneously. In this analysis I look at why the development of accounting standards is going to continue and not going to be effected by the unnecessary arguments being floated in this context.

MSR risk in Stress test should be minimal

April 14, 2009

Analysis by: GLG Expert Contributor

Analysis of:TheStreet.com | www.thestreet.com

Most large banks hedge their MSR positions creating an offset that would show up in scenario analysis, although Government intervention is hard to measure.  The Natural Hedge needs to be considered.

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